The Holidays are the season of giving!
If you’ve thought about donating to charity, but aren’t sure where to start, we are here to help!
We’ve compiled information on how to morph your values into actionable items, creative ways you can give, and the tax implications of charitable giving.
- Your personal values are the driver behind charitable giving.
- There are many ways to give to charity, you aren’t limited to just giving money.
- There are different tax vehicles you can use to both help your desired charity, and also potentially help you save on your tax bill.
If you’re just starting your giving journey, setting philanthropic goals is the best place to start.
At AVID Planning we approach finances from the lens of what we call a Purpose-Driven Money System.
In essence, this approach answers the question of:
How can you make your money work for you?
Financial life planning with our Purpose Driven Money System pushes you to view your finances holistically. This gives you the opportunity to create a better vision for your finances by following these 4 steps:
- Starting with your core values
- Defining your “10” (aka creating a vision for your ideal life)
- Taking SMART steps to get there (significant, meaningful, attracting, rewarding, timely)
- Remaining consistent, but adapting when necessary
If charitable giving aligns with your values, it’s time to decide how you want to give to others.
Choose Your Charitable Path
So, you know what your core values are, now what?
Let’s take a look at an example. Say you value empowerment, how can you convert that into an actionable item?
You could consider setting up a scholarship for young women entering the fields of math or science at your local high school, supporting a new local business via marketing or funding, or simply donating to a charity that helps empower others (like a professional clothing closet for people that need work clothing).
If you’re married or in a long-term committed relationship it’s important to consider your partner’s values too. You may value some different things or have different priorities on where you should give, so compromise is key. At the end of the day, make sure whatever you decide is meaningful and affordable for both of you.
How Much You Should Give
There isn’t a universal giving amount that suits everyone because all of us each have our own unique priorities and financial situations. If you’re able, sources say to start with 1% of your income and slowly work your way up.
There’s no legal limit on how much you can donate directly to a registered 501c3 charity, but there is on how much you can deduct from your taxes. More on that later!
When considering how much you should give to charity, it’s important to remember that the opportunities for giving are truly limitless. You aren’t limited to just donating money!
While charities rely on consistent, reliable funding sources, they also often need help in other areas that don’t involve finances. If you find yourself in a place where you want to give to charity, but can’t necessarily afford to yet, don’t let that stop you. Reach out to your desired charity and see how else you can help.
The charity might need consistent volunteers, assistance securing donations from others, or even just lending a helping hand every now and then.
Make It A Family Tradition
Giving in creative ways also gives you the opportunity to involve your whole family. While you and your spouse might be supporting the charity financially, your children could volunteer their time and give back in their own way.
Even better, make it a family tradition. You could volunteer annually at your local food bank to help prepare for Thanksgiving, hold an annual winter clothing drive on behalf of a charity, or donate new items to be given away as Christmas gifts.
Pro-Tip: Ask your employer for their support. Some employers have a charitable giving matching program as part of their benefits package. Meaning they may match what funds you give or volunteer as a company.
Be An Engaged Charitable Donor
Being an engaged donor can help ensure your donations and efforts go in the direction you want them to. In addition, knowing where your donations are being used can help both you and the charity identify where additional support is needed.
Of course, all charities have administrative and operating costs. You can always ask the charity to disclose how much is being spent in those areas to encourage transparency. There are also websites like Charity Navigator that can help you identify charities that are known for using their resources well.
Because you’re already gaining fulfillment from giving, tax efficiency is the icing on the cake!
The IRS authorizes tax deductions to charities that qualify for tax-exempt status. If you aren’t sure if your desired charity fits in that category you can use the IRS Tax Exempt Organization Search tool.
As we mentioned earlier, there are limits on how much you can deduct charitable contributions from your adjusted gross income (AGI). But, since there are different ways to donate funds to charity, their limits are also different.
In 2022, the limit for cash contributions is 50% of your AGI. For non-cash contributions, like stock shares are 30%.
Common Options For Giving
There are a few common tax vehicles to assist you in your giving journey. Each of them has its own benefits, so let’s take a look at a couple and see what could suit you best.
Donor Advised Fund (DAF)
This is a private fund administered and managed by a third party that distributes charitable contributions on your behalf.
DAFs carry immediate tax benefits. When you add funds to your DAF, you immediately receive the associated tax benefits, but have the ability to distribute funds later on when you’re ready. In addition, the funds in the account grow tax-free.
They also aren’t just for cash. You can utilize other forms of financial contributions like stock shares, mutual funds, real estate, etc.
If you donate assets other than cash directly to a charity you can avoid paying capital gains tax. This means that while the charity receives the full donation you get to save on your tax bill.
Non-cash assets are things like gains on your investments.
Need Help Getting Started?
If you’re feeling overwhelmed by the idea of choosing a charity, deciding how much to donate, and deciding how to donate, don’t be afraid to turn to a professional for help.
At AVID Planning we’re passionate about helping you reach your personal and financial goals. With our Purpose-Driven Money System, we can help you identify your personal values, set goals, and put them into action.
If you’re ready to get started please reach out to us today.